The markets are appreciative of the US Federal Reserve’s vigorous inflation-fighting policy.
The dollar jumped to a 20-year high on Wednesday against a basket of other major currencies, after President Vladimir Putin mobilized his reserve to fight in Ukraine and said he was ready to use “all means” to to defend oneself. In addition to its status as a safe haven, the greenback is also benefiting from bets on a strict monetary policy ahead of a decision by the American Federal Reserve (Fed) expected later in the day, the Dollar index, which compares it to currencies such as the yen, the euro or the pound, rose to 110.87 points, a record since 2002.
“It’s not a bluff”, hammered, with a serious face, Mr. Putin, accusing the Western countries of wanting to “destroy” Russia, of having recourse to “nuclear blackmail” against it and thus signifying that it was ready to use nuclear weapons. “Concerns of a potential escalation of the war in Ukraine, with the mobilization of hundreds of thousands of Russian reservists, sends investors to safe havens,” summarizes Susannah Streeter, analyst at Hargreaves Lansdown.
At the end of the evening, the dollar rose on Wednesday to its highest level against the euro for nearly 20 years after the announcement of an increase of 0.75 percentage point in the key rate of the American central bank (Fed). The greenback hit $0.9814 per euro for the first time since late October 2002, just a few months after the official changeover to the single currency.
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On the currency side, this means that the greenback jumped around 9 a.m. GMT (11 a.m. in Paris) by 0.69% to 0.9903 dollars for one euro and by 0.42% to 1.1334 dollars for one pound, even if the yen remained stable at 143.76 yen to the dollar while gold appreciated by 0.38% to 1,671.20 dollars an ounce. The eyes of traders will then turn to the Fed meeting, the decision of which will be published after the end of trading in Europe. The monetary institute is engaged in a fierce fight against inflation, and is careful to show the slightest sign of a slowdown in its rate hikes. “Rates should be back to their highest level since 2008,” said Han Tan, an analyst at Exinity Group.
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drab sterling
Beyond the meeting of the day, “if the Fed signals even stronger waves of rate hikes to come, there will probably be a new massive sale of risky assets”, warns the analyst. Among the troubled currencies, the pound hit a 1985 low of $1.1305 earlier in the session, battered by the dismal outlook for the UK economy.
The Bank of England (BoE) will publish its monetary policy decision on Thursday, and is expected to continue its rate hikes to counter inflation. Since her August meeting, new Prime Minister Liz Truss has promised support measures for households and businesses to deal with the severe cost of living crisis.
“This will probably reduce inflationary pressures in the short term, but could on the contrary strengthen them in the medium term”, warns Matthew Ryan, analyst at Ebury, who therefore expects a marked action from the BoE on Thursday.
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